The new incentive scheme for green energy near saturation point
Bern, 28.11.2008 - In the first six months since the start of registration for the compensatory feed-in remuneration scheme, 5,426 plants had already applied. An analysis of the applications up to the end of October 2008 shows that interest in the new incentive scheme is so great that it is already oversubscribed: the statutory cost limits for photovoltaic energy have been reached, and the total cost cap for compensatory feed-in remuneration is already exhausted. While the situation can be eased temporarily thanks to cautious overbooking of the technology cost cap, this is not a long-term solution to the anticipated gridlock of the new incentive scheme for green energy production. The DETEC has asked the SFOE to come up with solution proposals by mid-2009.
Producers of renewable electricity from hydro power (up to 10 Megawatts), photovoltaic energy, wind power, geothermal power and biomass energy as well as biomass waste have been able to register their plants for the compensatory feed-in remuneration scheme since 1 May 2008. By the end of October 2008, the national grid company swissgrid AG, which is handling the registration and decision process on behalf of the Swiss Federal Office of Energy (SFOE), had received 5,426 applications, 3,500 of which were received on 1 and 2 May alone. The number of new applications has since slowed to an average of 40 per week.
The scheme will go into operation on 1 January 2009: from this date, plants that qualify for the new incentive scheme and have submitted their notification of commissioning to swissgrid AG correctly and on time will receive the compensatory feed-in remuneration for the electricity they feed into the grid.
Total cost cap has been reached (see Annex)
The flood of applications for the compensatory feed-in remuneration scheme points to the enormous potential for renewable energy production in Switzerland. The 2008 annual add-on quota for new photovoltaic plants had already been filled by August 2008. In accordance with the Energy Act, the SFOE had to declare a moratorium on decisions and instruct swissgrid not to issue any more positive decisions for photovoltaic plants in 2008. Around 3,000 of these plants cannot be considered for the time being and have been placed on a waiting list.
For all other technologies, virtually all applications for the compensatory feed-in remuneration scheme have been considered provided the plants meet the statutory requirements.
The Energy Act (EnG, Article 7a, para 4) stipulates a cost cap for each technology, corresponding to the maximum percentage of the total amount of compensatory feed-in remuneration to which a particular technology is entitled. The cap is 30% for wind power and biomass energy, 50% for hydro power and 5% for photovoltaic energy. The latest analysis of applications received up to the end of October shows that the statutory cost cap for wind power has already been reached. And soon this may also be the case for biomass energy. Overall, the costs for all plants that received a positive decision have already reached the legally prescribed total for compensatory feed-in remuneration. This suggests an imminent gridlock of the new incentive scheme, as a result of which upgrades to production facilities for green energy may need to be stopped.
Short-term solution: Overbooking of the technology cost cap
The analysis of applications shows that many plants registered more than once. Applications were also made for large-scale facilities, particularly wind farms, which have no planning basis yet or do not meet zoning requirements. While such plants are not likely to ever be built, they still have to be provisionally considered as part of the scheme, albeit with the appropriate reservations. To prevent these "placeholder projects" tying up the funds of the scheme unnecessarily, the SFOE allows the partial cap for technology to be overbooked in a carefully calculated way (over-commitment). Overbooking for wind power was defined at +45%, for biomass energy +12% and for hydro power +7% (see Annex).
2009 compensatory feed-in remuneration surcharge: 0.45 cents per kilowatt hour
To finance the compensatory feed-in remuneration scheme, the Energy Act stipulates that, with effect from 1 January 2009, a maximum surcharge of 0.6 cents per kilowatt hour for Swiss electricity final consumption will be levied. In 2009 the surcharge will be 0.45 cents per kilowatt hour. This will guarantee financing for the scheme in the first year of operation (see Annex). Not all plants will go into operation on 1 January 2009. Many of them still have to be built first and will only start producing electricity in the next few months or years. The planning and construction phase can take up to eight years, depending on the technology. The compensatory feed-in remuneration will not be paid until electricity is actually fed into the grid.
Depending on the development of electricity final consumption in Switzerland and electricity market prices, this surcharge could be reduced in 2010, not least because part of additional cost financing will be abolished in 2010.
Transition from additional cost financing (15 cents per kWh) to compensatory feed-in remuneration
Before the introduction of the compensatory feed-in remuneration scheme, electricity production from renewable energies was incentivised by the additional cost financing system with the "15 cents per kWh" incentive. Existing additional cost financing agreements will remain in force until 2025, and until 2035 for hydro power. However, from 2009 accounts will be settled using the compensatory feed-in remuneration surcharge and the settlement schedule will change from annual to quarterly payments. The changeover of the incentive scheme will result in one-off costs for additional cost financing being much higher in 2009 then in previous years: on the one hand because the additional costs for the whole of 2008 will have to be increased, and on the other hand because the additional costs for 2009 have already been increased. As of 2010, these additional costs will once again be within the normal range. However, accumulated costs will decrease since some of the previous authorised parties will have to switch to the new scheme.
In addition, the automatic cession of guarantees of origin for electricity from renewable energies will come into force in 2009. Anyone wishing to continue charging additional costs after 2009 will have to have their plant accredited under the guarantee of origin system.
SOFE devises solutions for the future of the compensatory feed-in remuneration scheme
The long waiting list of thousands of photovoltaic plants has already led to several parliamentary proposals in the last few months calling for the removal or raising of the statutory photovoltaic cost cap, the total cap or the add-on quota. The SFOE has submitted a report on the problem to the responsible parliamentary commissions. On the one hand it is important to start up the compensatory feed-in remuneration scheme now, in order to gather practical experience in the first year of operation. On the other hand, however, given the anticipated gridlock in the scheme, political decisions need to be made regarding the future of compensatory feed-in remuneration. Over the next few months the SFOE will draw up specific proposals at the request of the DETEC.
Producers can switch to the green energy market
Recipients of the compensatory feed-in remuneration do not generate electricity for their own needs but sell their electricity at cost-effective prices that simultaneously also cover the ecological added value of the green electricity.
Plant operators who do not want to or cannot (yet) profit from the remuneration scheme can opt to either use the electricity they produce to cover their own needs, market the ecological added value on the green energy market or on a green energy exchange, or sell their electricity at the market price. In the latter case, the advisory Commission for Connection Conditions for Renewable Energies (KAEE) will draw up guidelines for the energy providers.
Address for enquiries
Michael Kaufmann, Deputy Director of the SFOE, 031 322 56 02
Regula Petersen, Expert on compensatory feed-in remuneration at the SFOE, 031 322 56 54
Swiss Federal Office of Energy